News from DNB Markets

Economic Outlook 2/2011

(24.08.2011)
There was a good deal of market turmoil this summer as investors once again fled to presumably safe havens like gold, Swiss francs and certain government bonds.

The reasons for the turmoil are that the crisis in the Euro zone has worsened to the point where there is a danger of a full collapse, and economic growth has abated. This has led to renewed fears of a so-called double dip, i.e. another economic downturn. This risk has indubitably increased but, like last year, we are convinced it will be avoided.

On the other hand, it looks like growth in the industrial countries will be modest: 1½ percent this year and 1¾ percent next year, respectively ½ and ¾ percentage points lower than estimated in May. The unemployment rate will fall less than previously assumed and the inflation rate will stay low for a long time.

We now believe that central bank rates in the major economies will largely remain at today’s levels until the autumn of 2013 or later. This will suppress long-term interest rates for a long time. If the unrest in financial markets continues, at worst this could lead to a collapse in the Eurozone, with a banking crisis and a new downturn in its wake.

There are, however, as few vital nuances to the somewhat gloomy picture painted above: GDP growth in emeging economies is expected to remain at an average of around 5½ percent, and these countries will consequently contribute roughly 2¾ percentage points to global growth, which is expected to come to around 3½ percent this year and next.

Energy demand and prices will remain at current levels, which means both substantial income and high activity for Norway. We expect the upturn here to continue and predict that interest rates will be hiked by 2 to 3 quarters of a percentage point per year.